Global crude prices have defied expectations by remaining remarkably stable during the largest oil supply shock in decades, thanks to four critical market buffers.
According to Kelly Xu, a Commodity & Energy Strategist at Alpine Macro, a catastrophic price surge was averted through massive demand destruction, non-Gulf supply growth, alternative export routes, and strategic inventory management.
Speaking to businessline, Xu explained that these mechanisms successfully rebalanced the global energy market and cushioned major import-dependent economies like India. Supply growth outside the Gulf has provided an additional cushion, she said. Higher output from non-OPEC+ producers — projected to grow by about 0.6 mb/d in 2026, led by gains in Brazil, the US, Canada, and Argentina — has partially offset lost volumes from Gulf producers.
According to Xu, alternative export routes and greater shipping flexibility have reduced the market impact of disruptions through the Strait of Hormuz. Key measures include pipeline systems that bypass the Strait, as well as shipping arrangements such as ship-to-ship transfers in the Gulf of Oman.
Finally, inventories have provided another source of market flexibility. “Strategic stock releases from the US and other OECD countries have injected a significant volume of barrels into the market, helping bridge the supply gap during the disruption,” she said.
On being asked how much fiscal headroom global adjustment mechanisms granted the Indian government to manage inflation and subsidies, she replied: “First, the current supply shock hasn’t moved crude prices to an extreme. While India’s 90 per cent import dependence historically leaves it vulnerable to market disruptions, the transmission of this shock to domestic inflation has so far been relatively contained.”
“Gradual domestic fuel price adjustments have shielded India’s headline inflation from global crude shocks. Regulated gasoline costs rose modestly from mid-May, peaking in late June below early-2025 levels before decreasing. This limited pass-through successfully cushioned the economy from international price surges,” she said.
The oil shock has not triggered broad-based inflation, she said, noting that the government’s response focused on containing inflation while limiting pressure on public finances. Instead of using broad-based fuel subsidies like in previous shocks, India combined fuel tax adjustments, measured retail price changes, targeted support, and strict subsidy cost management.
These measures shielded consumers from sharp energy cost increases but involved fiscal trade-offs, she cautioned. “Reduced fuel taxes lowered revenue, while higher subsidies and support for state oil companies increased expenditure. While the lack of an extreme oil spike provided fiscal headroom, prolonged conflict risks could gradually erode this flexibility. A muted global crude increase limits India’s import bill, reduces inflation pressures, and lowers the need for costly government interventions. However, high uncertainty remains regarding the duration of regional conflicts, threatening long-term fiscal stability,” she said.
When asked if Indian refiners are losing their leverage to demand deep discounts on Russian oil, she explained: “India’s bargaining power is driven less by absolute global crude prices and more by Russian supply availability, competing buyers, sanctions, and India’s alternative options.”
“While Middle East supply disruptions increase the strategic value of Russian crude, Indian refiners have not lost their leverage. The initial, exceptionally large discounts have narrowed as Russia adapted its logistics and export channels away from Europe. However, because India remains a primary buyer and sanctions still limit Russia’s market access, refiners retain negotiating power. Additionally, temporary U.S. sanctions waivers during the early stages of the Iran conflict maintained global supply flows but left broader constraints intact,” she added.
“Finally, a sharp decline in China’s global crude imports reduces competition for Russian barrels. As Russia’s other major buyer pulls back, its dependence on Indian demand increases, further preserving India’s leverage,” she said.